SCOTTSDALE, Ariz. — The private spaceflight industry got its start on the wings of angels — rich men like Paul Allen, who spent more than $20 million on the SpaceShipOne to win a $10 million prize and a
place in history
.

But even angels can fly alone for only so long.

The people who rely on those space angels say it's now time for their industry to go to the next stage of development, in which investors are in it for the money as well as the glory.

"We're hopefully moving soon toward a situation where institutional investors start looking at this industry," said Rich Pournelle, a spokesman for XCOR Aerospace in Mojave, Calif. "Angel investors don't want to be the only ones funding a company. They're always looking for critical mass."

Pournelle and two of XCOR's angel investors say they see signs that the critical mass is coming closer — in the success of SpaceShipOne, in the resulting
multimillion-dollar deal
with Virgin founder Richard Branson for a fleet of SpaceShipTwos, and in last year's
enactment of a law
that at last could open the way for private-sector space passengers.

Dot-com spotlight
Yet another sign comes this week, in the form of a conference that puts private spaceflight as well as personal aviation in a spotlight more typically reserved for blossoming dot-com ventures.

The Flight School conference is being presented by Esther Dyson, one of the computer industry's movers and shakers, as an add-on to the annual PC Forum she's conducted since 1983. Dyson admits she's no expert on space, but she hopes she can contribute by bringing together investors and market opportunities — just as she has in other tech sectors.

"The thing that really excites me is what excited me about PCs and the Internet," she told MSNBC.com earlier this week as she was headed to the event in Scottsdale. "It's people doing something new and taking risks."

Some space-industry observers note that the Flight School isn't exactly breaking new ground. For years, the annual Space Access conference in Phoenix has brought together rocket-builders and investors. But XCOR's Pournelle welcomes the added attention nonetheless.

Institutional venture capitalists, or VCs, haven't yet taken much of an interest in startup aerospace companies, Pournelle said. "Most of the aerospace institutional capital is midmarket and up — nothing under $10 million in [annual] revenue," he said.

The federal government is about the only source for those kinds of contracts, either through NASA or the military. "That has to change if we're going to see significant growth in the industry," Pournelle said.

Dyson said venture capitalists were indeed beginning to take note. "We do have a bunch of VCs coming, but it's certainly not your typical Mayfield or Kleiner Perkins," she said.

From the mouths of angels
Two of XCOR's angel investors said they also sensed a change in the air.

"The giggle factor has definitely gone away, and that's a huge reason why real financial people will talk to you," said Joe Pistritto, who counts himself as the second outside investor to put money into XCOR. "The industry has suddenly become real."

Lee Valentine, who has been an angel investor in robotics and the computer industry as well as space ventures, recalled the reaction he used to get when he lobbied for private spaceflight on Capitol Hill. "People looked at us like, 'Oh, surely you're smoking something. Only governments can fly in space,'" he said.

Then came SpaceShipOne.

What SpaceShipOne did
The team behind SpaceShipOne — including billionaire backer Paul Allen and the craft's designer, Burt Rutan — looms as the best-financed and most formidable competitor for any other company in the market. Nevertheless, even XCOR's angels paid tribute to Rutan for showing that a private venture actually could put humans in outer space.

"People now realize it doesn't cost hundreds of millions of dollars or billions of dollars to build a spaceship," Valentine said.

Pistritto attended SpaceShipOne's first foray into outer space back in June 2004, along with thousands of others. "If we could sell tickets for a ride on that vehicle, people would buy them — and that's the basis of an industry," he said.

Both Valentine and Pistritto said they were motivated to invest in the industry by the dream of affordable spaceflight, as well as irritation over the slow pace of NASA's progress toward that goal. "This is a field that people get into because of the desire to own your own space program, as opposed to making a ton of money," Pistritto said.

Pistritto made his money in the software industry, working in executive positions at tech companies ranging from Oracle to a startup called XDegrees. He's currently vice president for research and development at San Francisco-based Embarcadero Technologies. Pistritto said he and another angel put their money into XCOR after getting to know the company's founders at a Space Access conference about five years ago.

Valentine, a physician, traces his involvement with space issues back to an association with the Princeton-based Space Studies Institute and its founder, space visionary
Gerard O'Neill
. Today Valentine serves as the institute's executive vice president.

"My personal outlook is that human migration off the planet is necessary for the survival of the human race and the survival of freedom," Valentine said. "But I would say that my motivation for being involved with XCOR in the near term is to make money."

The path to making money
Valentine said he came to the conclusion that investing in private-sector space travel offered an opportunity to make money as well as advance his personal space vision.

"Space transportation is extremely immature," he said. "A mature transportation system generally has costs that are maybe three times the fuel cost, so that would lead you to expect that if you had a mature transportation system, the cost of putting a pound of payload in orbit should be $50 to $100 as opposed to $10,000 to $20,000. That is almost the definition of an opportunity."

Valentine said that "space tourism appears to offer the only commercially viable path to a mature, hence cheap, space transportation system" — and an assessment of the track records and business plans of several companies led him to invest in XCOR.

Of course, Branson's Virgin Galactic, Rocketplane Ltd.,
Aera Corp.
and many other companies are going after that same market, as well as secondary markets for microgravity research and small-satellite deployment. One of the big questions has to do with just how big those markets will turn out to be.

Much has been made over Branson's claim that thousands of would-be fliers already have signed up for Virgin Galactic's suborbital service, which is due to start operations in 2008. But in a recent issue of The Space Review, columnist Sam Dinkin noted that the claim was based merely on the number of people registering their interest via an Internet form.

Closely held details
In reality, many of the details surrounding the finances and operations of suborbital space companies are closely held. Dyson contrasted that situation with the modus operandi she saw at work during last week's O'Reilly Emerging Technology Conference. One of the conference's featured speakers was Amazon founder Jeff Bezos, the angel behind the
Blue Origin space venture
.

"Everybody there is sharing," she recalled. "It's open source. They have good ideas, they build on each other's ideas. Space is totally different. People are secretive. They won't talk about what they're doing. Ironically, having a good idea gets you nowhere. You have to implement it."

Dyson speculated that the big winners in the market might not be the space-tourism firms themselves, but rather their suppliers. She drew a parallel to the Klondike Gold Rush of the 1890s, when the real money was made not by the miners in Alaska but by outfitters and steamship companies back in Seattle.

"What's really going to be interesting will be the guys who do spaceship cleanup, janitorial services in space," she said.

Exit strategy, entrance strategy
In fact, the industry's first winners might not have to send passengers into space at all, Pistritto said. The key will be in how the initial investors "exit," or get their money back out of the investment they've made, he said. "This year and next year are really important, because one or more of these companies may actually achieve exit, probably through an acquisition," he said.

Pistritto stressed that he was only theorizing — but if one of the suborbital space startups was bought out by a larger, more established aerospace company, that would provide a real-world valuation for the other companies in the market.

Valentine agreed that the next couple of years would tell the tale, but sketched out a different scenario. He noted that Branson's published price for a suborbital tour package was roughly $200,000.

"My oldest daughter and her husband called me up and said, 'Dad, we're going to fly on one of these spaceships,'" Valentine said. "Then they thought about it a bit and said, 'Well, wait a second, that's a lot of money for us. We should wait a couple of years and prices will come down.' And I said, 'You're right.'"